4 Fraud-Fighting Checklists for Agents

Are your clients or prospects trying to pull a scam? Industry experts share their red flags for fraud.

Insurance fraud is bigger than ever, and scammers are coming up with new wrinkles all the time. As the guys on the front lines, insurance agents are in a unique position to spot insurance fraud as it’s happening and play a powerful role in stopping it before it starts.

Conservative guesses put the cost of fraud across all lines at $80 billion a year, said Jim Quiggle of the Coalition Against Insurance Fraud (CAIF). The Aite Group estimates it at about $70 billion for property-casualty fraud alone, with 10 percent of every claims dollar goes to fraud.

And instances of fraud are on the rise: The National Insurance Crime Bureau (NICB) conducts numerous studies on insurance fraud and reports a 27 percent increase in the submission of questionable claims by NICB member insurance companies since 2010.

Here are the types of fraud experts say are most prevalent today:

Claims padding: “Lost wedding rings, inflated home entertainment systems after burglaries or house fires—these kinds of claims are a perennial drain on insurers,” Quiggle said.

Staged auto crashes: A long-standing, well established and sophisticated crime niche, dominated by ethnic groups (Russians, Armenians, Estonians), especially in heavily populated urban areas in states with mandatory personal injury protection insurance like Florida, Massachusetts, New York and New Jersey. Crooks take out policies on people who then stage accidents to collect medical benefits under the state’s no-fault provisions, Walsh said. A largely Russian-run ring in New York made at least $400 million in bogus injury claims, Quiggle said.

Contractor fraud: Whenever natural disasters strike, contractor scams are close behind; and events like last year’s Superstorm Sandy are like ringing the dinner bell for crooks. The problem has grown so acute that more states are passing laws cracking down on dishonest contractors.

Workers’ comp fraud: Strapped business owners reluctant to part with cash for workers’ comp premium are hiding workers in shell companies or labeling them independent contractors, especially in the construction industry, Quiggle said. Networks of check-cashing firms help launder the money.

Arson: Economic hard times always make auto, home or business arson more popular. Nearly two-thirds of state fraud bureaus reported increased home arson cases in 2010.

Healthcare reform scams: The large market of uninsured Americans are ripe for the pickings here, as bogus healthcare plans grow. Most state fraud bureaus have reported a spike in fake health plans, with nearly 40 percent saying their caseload was much higher, according to CAIF.

Ghost brokering: The growth in online and direct insurance has created a lucrative market for an emerging trend known as “ghost broking,” said James Ruotolo, principal at SAS, a business analytics software firm. Ghost brokers offer significantly cheaper insurance rates than legitimate insurance agents by falsifying key details in the application to ensure that the insured pays lower premiums. Ghost brokers are often unlicensed and the policies they obtain for their customers/victims may be invalidated because of the fraudulent way in which they were obtained. Although the practice is prevalent in the United Kingdom, more cases are emerging in the U.S., CAIF’s Quiggle said.

Agents are in a unique position to spot insurance fraud before it happens because they are sometimes dealing face-to-face with the would-be perpetrators. Fraud experts—and insurance agents who have personally faced down fraud--provided this checklist for agents to use in preventing the most prevalent forms of insurance fraud:

If you suspect someone is gaming the system or intentionally trying to obtain benefits to which they are not entitled, contact the insurance companies’ special investigation unit or the National Insurance Crime Bureau hotline at 1-800-TEL-NICB.

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